Car loan interest / Who qualifies
26 U.S.C. § 163(h)(4) · tax years 2025–2028
No tax on car loan interest: who qualifies and how much
Car loan interest is still interest when you pay it. For 2025 through 2028, the law adds a deduction of up to $10,000 a year for qualified passenger vehicle loan interest, claimed on Schedule 1-A whether you itemize or not.
Checklist: do you qualify?
- Loan after December 31, 2024. The loan must be incurred after that date to buy the vehicle, and secured by a first lien.
- Personal use. The loan is for personal use, not a commercial vehicle unused for personal purposes.
- Listed type under 14,000 pounds GVWR. Car, minivan, van, SUV, pickup, or motorcycle with gross vehicle weight rating under 14,000 pounds.
- Original use / first user. Original use must commence with you. A used vehicle bought from someone else generally does not qualify. Form 1098-VLI box 6 is the lender’s checkbox for this.
- Final assembly in the United States. Decode the VIN (plant of manufacture) or read the final-assembly point on the vehicle label. Form 1098-VLI box 7 is the lender’s checkbox. Check a VIN here.
- None of the exclusions. Not a lease, fleet sale, salvage title, scrap or parts vehicle, or a loan from a related person.
Cap and income phaseout
| Single / head of household / MFS | Married filing jointly | |
|---|---|---|
| Maximum deduction | $10,000 | $10,000 |
| Phaseout starts above MAGI of | $100,000 | $200,000 |
| Reduction | $200 per $1,000 or portion thereof over the threshold (Schedule 1-A line 28 rounds a partial thousand up) | |
| $10,000 fully phased out at | $150,000 | $250,000 |
Example: single filer, $4,200 of qualified interest, MAGI $112,400. Excess is $12,400 → 13 steps (partial thousand rounds up) → $2,600 off → $1,600.
Tips and overtime use different caps and a $150,000/$300,000 phaseout that rounds down. See no tax on tips and no tax on overtime.
Used vs new, leases, and business use
Usually qualifies
- New vehicle; you are the first user
- Personal-use loan after Dec. 31, 2024, first lien
- U.S. final assembly (VIN plant or label)
- Refinance of that loan, only up to the old balance, same vehicle, first lien continues
Doesn’t qualify
- Used vehicles (original use did not commence with you)
- Leases
- Fleet sales, salvage titles, scrap or parts
- Loans from a related person
- Commercial vehicles unused for personal purposes
- Final assembly outside the United States
Refinance and Form 1098-VLI
Your lender reports qualifying interest on Form 1098-VLI when it received $600 or more on the loan. Box 1 is the interest on the qualifying part only (negative equity and cash proceeds are left out). Boxes 6 and 7 are the original-use and U.S. final-assembly checkboxes. For 2025, many lenders used a portal or year-end statement instead of the form (Notice 2025-57).
On a refinance, only interest up to the prior loan’s balance stays in the qualifying pool. Put each vehicle’s VIN on Schedule 1-A, Part IV (line 22 on the 2025 form); line 24 caps the total at $10,000.
How you claim it
Enter the VIN and qualified interest on Schedule 1-A, Part IV. The deduction does not require itemizing. You need the VIN on the return for each year you claim it. This is federal only. States decide separately whether to follow the car loan interest deduction; we are adding state status where we have a primary source on the states hub.
Questions
Is car loan interest tax-free now?
Not exactly. Interest you pay is still interest. For tax years 2025 through 2028, eligible buyers can deduct up to $10,000 of qualified passenger vehicle loan interest on Schedule 1-A, whether they itemize or not. The loan and the vehicle have to meet the statutory tests, including U.S. final assembly and original use commencing with you.
Who qualifies for the no tax on car loan interest deduction?
Someone who paid interest on a loan incurred after December 31, 2024, to buy a new-to-them car, minivan, van, SUV, pickup, or motorcycle under 14,000 pounds GVWR, for personal use, secured by a first lien, with final assembly in the United States. Original use must commence with the buyer. Leases, fleet sales, salvage titles, scrap vehicles, and loans from a related person do not qualify.
Does a used car qualify?
Generally no. Original use must commence with you, which means you were the vehicle’s first user. A used vehicle bought from someone else fails that test. Form 1098-VLI box 6 is checked when the lender treats you as the first user.
Do leases count?
No. A lease is not a qualifying loan. The statute and Form 1098-VLI instructions exclude leases from the deduction.
What if I use the vehicle for business?
The loan has to be for personal use. A commercial vehicle unused for personal purposes does not qualify. Mixed personal and business use is an open verification item on this site’s sources page; do not treat a business-primary loan as personal without advice.
What is the income limit?
After the $10,000 cap, the deduction drops by $200 for each $1,000, or part of $1,000, of modified adjusted gross income over $100,000, or over $200,000 on a joint return. Schedule 1-A rounds a partial thousand up on the car loan line. A single filer at the full $10,000 cap loses it all at $150,000 of MAGI; a joint return loses it all at $250,000.
I refinanced. Can I still deduct interest?
A refinanced loan can stay qualifying only if it is secured by a first lien on the same vehicle, and only up to the old loan’s balance on the refinancing date. Interest on principal above that is left out. If a different person becomes the borrower, the new loan does not qualify, except when that happens because the previous borrower died.
Do I need Form 1098-VLI?
The deduction depends on whether the loan and vehicle qualify, not on receiving the form. For 2025, Notice 2025-57 let lenders skip the form and show the year’s interest in a portal or statement by January 31, 2026. From 2026, expect Form 1098-VLI when the lender received $600 or more of interest on the loan. Below $600 you can still deduct using your statements if you otherwise qualify.